Market_Econ_Jones - WHAT IS A MARKET ECONOMY After...

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WHAT IS A MARKET ECONOMY ? After mastering this chapter, students will be able: to identify and explain the main characteristics of a capitalist or market economies : - productive resources are privately owned - profit incentive is fundamental - bulk of goods and services produced are sold in markets - markets are interconnected to identify and discuss two key markets : - stock market - labor market to explain basic criteria for evaluating economic systems to make a critical evaluation of market economies with the help of these criteria to explain the role of government in market economies
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WHAT IS A MARKET ECONOMY ? 64 HISTORICAL BACKGROUND During most of the 20 th century, the world has been divided between capitalist countries whose economy was organized around markets, and socialist countries whose economy was managed directly by the State through centralized planning. Capitalism was born in 17 th century England and rapidly became the predominant economic system in the world. With the Russian revolution of 1917, socialism made its first steps ; it rapidly expanded, pushing back capitalist structures in country after country. So much so that by the 1980s, half the population of the world lived in centrally planned economies. However, with the spectacular and rapid downfall of socialism in Eastern Europe and the Soviet Union in the late 1980s and the subsequent revamping of their economies around markets, capitalism reaffirmed its predominance worldwide. China, whose population represents nearly 20% of the total population of the world, remains officially socialist; but the economic policies it has been implementing since the early 1980s are creating a capitalist economy. Even Cuba, a small but extremely militant socialist country, started embracing market-oriented economic policies in the early 90s. In order to gain an understanding of the world economy, it is thus very important to become familiar with the nature and basic structure of capitalism. First, we will present the main characteristics of capitalist or market economies. Second, we will discuss the basic criteria one should use in evaluating an economic system. With the help of these criteria, we will then critically evaluate capitalism, pointing out both its strengths and weaknesses. In the last section, we will discuss the role played by governments in capitalist economies. Different Names, Same Reality Different names can be used to describe the type of economy we have in Canada. Some call it a market economy, some a capitalist economy and others a free enterprise economy. The term ‘capitalist economy’ is older. It places emphasis on those who, in such an economic system, own the firms and have the money (capital) necessary to finance production. They are called capitalists. The expression
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This note was uploaded on 04/03/2011 for the course ECON 201 taught by Professor Curtis during the Spring '09 term at Concordia Canada.

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Market_Econ_Jones - WHAT IS A MARKET ECONOMY After...

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